Risk Aversion and the Value of Life

Juan Carlos Cordoba, Iowa State University and Marla Ripoll, University of PittsburghPosted onOctober 11, 2016

We show that state non-separable preferences à la Epstein-Zin-Weil (EZW) provide a tractable and flexible framework to study the economics of health and longevity. This utility representation: (i) admits a preference for timing of resolution of uncertainty regarding mortality risks; (ii) links the marginal valuation of survival to the level of survival; (iii) can preserve homotheticity even for low degrees of intertemporal substitution without generating implausible predictions regarding the value of life; and (iv) adds needed flexibility to account for the empirical evidence on the value of life. We illustrate the implications of EZW preferences for the economic value of observed differences in life expectancy across countries and over time, and for the value of life over the life cycle.